Principles of Financial Accounting · free preview
Computing and Allocating Partners' Shares of Income and Loss
Partnership income is divided according to the agreement using fixed ratios or layered schemes of salary and interest allowances, and any residual splits by ratio, with losses following the same machinery unless the agreement says otherwise.
1. The agreement controls the split
The agreement controls the split
2. A layered allocation
A layered allocation
3. Loss allocation follows the machinery
Loss allocation follows the machinery
4. Why allocations are not wages
Why allocations are not wages
5. Silence default
A partnership agreement says nothing about profit sharing. How are profits divided?
6. Allowance classification
Why are salary allowances to partners not recorded as wages expense?
7. Computing a share
Profit is 100,000 dollars. A receives a salary allowance of 30,000 dollars, B receives 20,000 dollars, interest at 10 percent on capital of 120,000 dollars for A and 80,000 dollars for B, and the remainder splits equally. Compute A's total share.
8. Loss with allowances
In a year when the partnership loses 20,000 dollars, what happens to the salary and interest allowances?
9. Interest allowance amount
Interest allowance is 10 percent on Partner A's beginning capital of 120,000 dollars. Compute the allowance in dollars, number only.
10. Residual after allowances
Profit is 100,000 dollars and total salary and interest allowances are 70,000 dollars. Compute the residual to split by ratio in dollars, number only.
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